[2025] UKUT 00138 (LC)

It was the claimant’s case that there would have been an MGV in the P3 contract in the no scheme world, of 250,000 sleepers per annum, as there had been in the 2012 contract. Mr Jarvis emphasised the mutually beneficial nature of such a guarantee, enabling the manufacturer to spread the cost of their overheads and thus to keep the price down. He was adamant about this, and in response to cross-examination asked rhetorically; “why wouldn’t I have given an MGV?” He pointed out that in the no scheme world the failure of the Bescot planning application would have been a major blow to NR, as it was in the real world; he spoke of the despondent “mood in the camp” and said that in the no scheme world he would have said to the Contracts and Procurement team “just get me a Cemex contract at Washwood Heath”. The easiest way to do that, he argued, would have been to roll over the terms of the existing contract including the MGV. He suggested that arrangements might have been made for a “single tender action” to facilitate that.

Mr Heubeck on the other hand thought that there would have been no MGV. Low demand from 2019 going forwards would have meant that either no MGV was offered or one at a low level of 100,000 per annum.

We accept that if the P3 ITT had been issued with a view to securing the second supplier in the established duopoly (as were the ITTs for P1 and P2) NR would have offered an MGV. And we accept that Mr Jarvis would have regarded an MGV as a routine provision in such a contract. It is significant that there was an MGV in both the 2012 contract at WWH and TWM’s 2011 contract, and that an MGV of 200,000 per annum was offered in the P1 and P2 ITTs. It was a wholly normal term. Of all the contracts we have been told about, only the current Rochester contract does not have one, but we were told and we accept that there were two reasons for this. One was that the contract was intended as a stop-gap, to provide for a dwindling supply while Bescot was built and started production – the ITT having been issued in September 2019 when the Bescot planning application was still live. The other was that NR provided £6.2 million for capital costs at Rochester (funded by HS2), so that the claimant was really not in a position to ask for an MGV as well.

But the difficulty for the claimant on this point is that the sleepers experts have said, in carefully agreed terms in their SAFI, that in the no scheme world:

“just as in reality, NR would have prepared and issued an Invitation to Tender, ("ITT") in 2019 … The ITT would have described NR’s supply requirements, in the same way as the P3 contract described in the Scheme World.” (emphasis added)

In light of that wording we take that agreement to mean that the ITT would have been issued at the same time and on the same terms as in the real world, before the refusal of the Bescot planning application and on the basis that the contract was going to be for an interim supply to tide NR over until Bescot came into production. Accordingly no MGV was offered in the ITT.

Despite that agreement, at the hearing there was some argument as to whether the ITT for the P3 contract would have been issued later in the no scheme world. The claimant argued that it would have been delayed, because with WWH still operating there would not have been the urgency there was in the real world and NR would have been able to wait until it knew the outcome of the Bescot application. Once it knew that the P3 contract would secure its second supplier rather than providing a stop-gap it would have issued the ITT and offered an MGV. We think that most unlikely; in the no scheme world in September 2019 there would have been much the same urgency because the outcome of the Bescot planning application was in doubt, and even if permission was granted Bescot had still to be developed and start production Importantly, that argument runs counter to the sleepers experts’ agreed evidence on this point.

So that argument is unconvincing. Equally unconvincing is Mr Jarvis’ suggestion at the hearing that there would have been a “single tender action” (which he admitted would have needed to go through a rigorous approvals process) in order to simply roll over the Cemex contract. In the SAFI the sleepers experts agreed that there would have been a procurement process just as in the real world, and there is no room in the context of that agreement for a wholly different process. And such a process would not have been necessary; by the time the Bescot planning permission was refused the claimant had already made its bid in response to the P3 invitation, with a price and terms that did not involve rolling over the existing contract. The Contracts and Procurements team would have been able to proceed in response to that tender rather than initiating a new and difficult single tender process.

We have not heard evidence about the rules of the procurement process which would enable us to say whether it would have been open to NR to offer an MGV, contrary to the terms of the ITT, in the early months of 2020 in the no scheme world when it was clear both that Cemex’ bid was successful and that the Bescot project was dead in the water. But even if that would have been possible we fail to see why it would have done so. As Mr Jarvis explained, NR’s motive for offering an MGV was to keep prices down. But pricing was already fixed in the bid submitted in November 2019. Moreover, in the early months of 2020 the pandemic was gathering momentum; whilst the final P3 arrangements were being made it would have been obvious to everyone that the coming months or more were going to be very difficult indeed for the railways as for all other industries; it is difficult to see a reason for NR to offer an MGV to Cemex in those circumstances.

Accordingly we find that the P3 contract in the no scheme world would not have contained an MGV.